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What is your perceive our democratic process works? It could be similar to this. We elect MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Statutes is maintained by the courts. That's it. Yet, that was how it used to work. No longer.

The Rise of Offshore Courts

In the modern era, overseas companies, along with the wealthy individuals that control them, can sue nation states for the regulations they pass, at offshore tribunals staffed by commercial attorneys. These proceedings are held away from public scrutiny. Unlike our courts, these panels allow no right of appeal or oversight by judges. You or I are unable to file a case to them, and neither can our government, or even companies operating from this country. The door is open solely for corporations registered abroad.

Should an arbitration panel rules that a government measure could harm the corporation’s projected profits, it can award financial penalties of hundreds of millions, running into billions.

These sums constitute not real financial harm but funds the panel members decide the company could potentially have made. The government could be forced to abandon its policy. It will be deterred from passing future laws of a similar nature, for fear of facing litigation.

A System Spiralling Out of Control

Record numbers of cases are being brought, as corporations take cues from each other, and hedge funds bankroll lawsuits for a share of a share of the takings. The consequence? Democratic sovereignty and democratic governance are turning into too costly.

The process is known as “investor-state dispute settlement” (ISDS). The reason it can override national legislation and the decisions made by legislatures is that this stipulation has been written – absent public approval, and typically amid an atmosphere of profound opacity – inside bilateral investment treaties.

A Specific Example: The UK Coal Mine

Last year, activists won a great victory at the high court. The judge found that schemes to excavate the first new deep coal mine in the UK for a generation, at Whitehaven in Cumbria, were found to be wrongly permitted by the outgoing administration, which had agreed to the bizarre claim that the mine would have no consequence on climate commitments. The new government subsequently revoked the licence the Tories had granted. Now, this success could be compromised by an foreign court reporting to exclusively the corporations petitioning it.

In August, a company whose beneficial owners are based in the Cayman Islands lodged a claim against the UK government. Last week a dispute settlement body in Washington DC was established to hear it.

This firm is seeking compensation from the UK for the revenue it could have earned if the mine had been allowed to commence operations. We have little idea how much this could amount to. What legal team is acting on its behalf challenging the British government? An elected representative, and previous senior legal advisor in the Conservative government, the self-proclaimed patriot Sir Geoffrey Cox. The state enacts a policy, the domestic court upholds it, then a overseas corporation contests it through an unaccountable arbitration panel, and a elected official represents its behalf.

The Russian Case

Concurrently that the panel on the mining lawsuit was convened, we learned from a parliamentary answer that the UK faces another lawsuit under ISDS by a wealthy Russian individual, Mikhail Fridman. We know little of the case to date, but it is highly possible that he will utilise the tribunal to fight the sanctions the UK enacted against him subsequent to the war in Ukraine. He has initiated proceedings against a small nation on these grounds, demanding $16bn: an amount representing half government’s annual revenue. Included in the legal team acting for him in that case? Cherie Blair, spouse of the ex-UK leader.

International law scholars argue that the EU’s hesitation in using frozen state funds as collateral for its aid for Ukraine stems from concerns within Belgium that it could be subject to litigation in the ISDS tribunals, under a investment pact. This extraordinary, secretive influence over elected governments could be blocking the finance Ukraine desperately needs.

Misleading Claims and Growing Threats

We were assured that these events were not possible. Previously, a former prime minister, promoting the most significant and hazardous of all investment pacts, told us: “The UK has signed trade agreement after trade deal and there has not been a issue in the past.” A consultant on this matter accused campaigners of “alarmism … the truth is, ISDS barely touches the UK much”. The overall message was crafted to be that only poorer nations needed to fear these lawsuits. Warnings that “when companies start to realise the influence they now possess, they will redirect their efforts from the vulnerable countries to the strong ones” were greeted by widespread derision.

That warning has come to pass. In the current period, fossil fuel and extraction companies have filed a unprecedented number of cases against nations both wealthy and developing, challenging – as in the case of the Cumbrian coalmine – government attempts to prevent global warming. Companies have thus far won vast sums by using ISDS, of which energy giants have secured the majority. That represents the combined GDP